When you need a loan quickly for an urgent property purchase or when traditional lenders disapprove a loan, hard money may be a great option. Another good option is a bridge loan financing which is a short-term loan used until a borrower secures permanent financing or removes an existing obligation. It allows the borrower to meet current obligations by providing immediate cash flow. Bridge loans are short term, up to one year, have relatively high interest rates and are usually backed by some form of collateral, such as real estate or inventory.
Hard money lenders take a different approach: they lend based on collateral securing the loan, and they are less concerned about your ability to repay.
Why Hard Money Loans Are Perfect for Fix & Flip Properties
Fix-and-flip is a good method of making profit out of a property. It involves purchasing a property, renovating it, then selling it at a profit. Investors typically buy a property at a discount because of its imperfect condition. It might be in a disrepair condition due to abandonment or because the current owner is unable to pay for the upkeep. Sometimes the property needs only some aesthetic touch to it. Most of the time, it requires major renovations. After the property investor fixes up the property, the next step is to sell it as quickly as possible and at as much of a profit as possible.
Hard money real estate loans are often the best way to borrow money for fix and flip properties and many other types of real estate transactions. There advantages of hard money loans are numerous, the most obvious being the speed and ease of approval and funding for the borrower.
Why Hard Money Loans Are Quicker and Hassle-Free
Hard money lenders are more focused on the property and its potential value than the borrower’s background. Should anything go wrong and you are unfortunately unable to repay, hard money lenders can get their money back by taking the collateral and selling it.
Before applying, a potential borrower should know the main advantages and disadvantages of using a hard money loan. The following are 8 benefits of hard money loans.
- Quick approval and funding.
- Income history and perfect credit scores are not necessary.
- It provides flexibility.
- Less approval requirements.
- No prepayment penalties.
- Helps avoid losing investment opportunities.
- Ability to negotiate for a better purchase price with a quick close
- Hard money loans make the real estate investor’s offer stronger
Top 3 Disadvantages of Hard Money Loans:
- Interest Rates Are Higher Than Bank Loans
- They Are For Short Term Use Only
- They Require A Down Payment Or Equity Of At Least 25-30%
Reliable and experienced private money lenders for real estate such as North Coast Financial analyzing a loan request or project will give their honest opinion and bring up any issues that could jeopardize the project. The advice from the hard money lender could also cause the real estate investor to reconsider moving forward with the subject property altogether in order to avoid making a loss on the project.